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Can I leave my life insurance to a charity in Australia?

13 October 2017

Find out how life insurance can be a means of some charitable giving.

Everyone dreams of leaving the world a better place than when they arrived in it, and regardless of how well you think it’s going these days, there are various post-mortem moves you can make. This can include:

Leaving your family with financial security. It’s important to make sure your family is taken care of when you’re gone.

Leaving money to charities through your life insurance. For those with a philanthropic goal in mind, this could be an ideal choice.

Life insurance and charity

Life insurance allow someone to make small contributions (in the form of premiums) in order to donate a larger sum (if you die) to a charity of choice.

Is life insurance tax-deductible for charity?

Life insurance premiums are not usually tax-deductible in Australia. This also means that any life insurance payouts you received aren’t taxed either so your beneficiaries won’t need to worry about having any of it disappear.

What happens if I nominate a charity as a life insurance beneficiary?

If a charity is the only listed beneficiary, then the full life insurance payout will go towards the charity. If it is one of several beneficiaries then the payout will be divided among them.

Should I list the charity as a beneficiary on an existing policy?

If you want to leave the full payout to charity, then having a charity as a beneficiary is a considerable option.

If you want to leave only some of the payout to a charity, it’s probably not a good idea to name it as a beneficiary. Should the other beneficiaries pass away, the charity might end up getting it all, even if you’d prefer for it to go elsewhere.

Do I have any other options?

If you still want to make sure both my family and the charity gets a substantial payout when you die, you might want to consider taking out a separate life insurance policy with the charity named as the sole beneficiary.

How can I take out a life insurance policy for charity

1. Adjust your existing policy

If your beneficiaries financially independent and agree that your lump sum is better served philanthropically, you might re-nominate a charity as the beneficiary. Note: It’s a good idea to consult those beneficiaries before making any changes.

2. Take out a separate policy

A more realistic alternative is probably to take out an entirely separate policy that names the charity, or multiple charities, as the beneficiaries. This means you can:

Pick a lump sum of your own choosing, that’s the actual amount you want to donate to a charity, rather than whichever amount happens to be with your “real” life insurance policy

3. Find a policy that provides an automatic payment

Some life insurance policies may even provide an automatic payment to the charity of your choice at the time of your claim.

Can having a charity as my life insurance beneficiary be contested?

It is possible, but it's dependent on the circumstances.

If you nominate a policy at the time you take out your policy

If you take out a policy of with a 'sound mind', and at the time nominate a charity as the sole beneficiary, then that probably won’t be contested.

If you change your beneficiary later on

If you change your beneficiary later on it could get tricky. For example, if your children were the designated beneficiaries for the entire duration of the policy, and then at the last minute you decided to nominate a charity instead, it's possible that the change may be contested.

Generally, the beneficiaries would have to demonstrate that the change was done while you were not of entirely sound mind and that there was an undue outside influence.

Sound mind

Sound mind refers to a stable mental condition of someone at the time of naming their beneficiaries (in a life insurance policy). The exact definition may differ state to state.

What else should I know about leaving life insurance to charity?

Legal pitfalls to be aware of

Depending on the nature of your relationship with the charity there may be some risks to consider. For example, you probably shouldn’t try to claim tax deductions by making donations to a charitable organisation that you’re a paid employee of.

Choosing a charity

If you can’t decide, one method could be dividing the sum among different types of organisations, by naming each as an equal beneficiary. For example, you might choose one overseas aid organisation, one Australian-focused charity and one environmental organisation.

You might also want to look into organisations that let you specify how the money is spent. For example, you might want to make sure it all goes to vaccination efforts to get more life-saving bang for buck.

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